Definition of relative performance evaluation (RPE)

An evaluation of an individual’s performance that is based on the difference between an individual’s measurable output and an aggregated amount of the same measurable output observed in a group of the individual’s peers. The main idea behind relative performance evaluation is that an individual should not be held responsible for risks and factors beyond the control of the individual.

Example

An individual would not be held responsible for downturns in the individual’s performance arising from uncontrollable factors such as natural catastrophes, general economic conditions, stock market volatility, and government regulation.

Assuming peers are also affected by these same uncontrollable factors, then measuring the net performance (i.e., the difference between, for example, the individual’s financial outcomes and the aggregated financial outcome from a group of peers) means that the individual can be evaluated as having performed well even if there is a weak financial outcome, as long as that weak financial outcome is better than the corresponding financial outcome from a composite of the individual’s peer group. [1]

The drawback of RPE is that it can encourage workers to engage in behaviour such as sabotaging the efforts of co-workers, collusion with co-workers to collectively shirk, and hiring inept co-workers to work on their teams. Relative performance evaluation contracts are not desirable when it is difficult to measure worker performance or when it is desirable for teams to work together. [2]